Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

Delta Air Lines, Inc. v. State Board of Equalization . . . (1989)

Offset of Fuel Tax Overpayment Must Be Claimed In a Timely Manner

Taxpayer is a common carrier subject to sales tax imposed by California law on fuel used by common carriers while conducting the business of interstate transportation. The fuel necessary to reach the common carrier's first out-of-state destination is subject to sales tax, while the remainder of the fuel used for transportation is exempt. Taxpayer reported the amount of fuel subject to the tax based on estimates, and the Board verified the accuracy of the estimates by requiring a five-day test of actual fuel consumption. The Board applied the five-day test period results to bills of lading filed by taxpayer, and credits for overpayments of tax as measured by the test results were offset against charges for underpayments of tax, as also measured by such results. However, in November 1977 the Board amended its Sales and Use Tax Regulation 1621(d)(1) to require that changes of "estimated" fuel consumption to actual fuel consumption be made within the appropriate reporting period. Taxpayer failed to observe the time requirements and the Board assessed additional sales tax where underpayments were found, but did not allow offsets for overpayments. Taxpayer filed a claim for refund, arguing that it was unfair for the Board to abandon its prior practice of taking into account both overpayment and underpayment. The trial court awarded taxpayer the overpayments.

The court of appeal held for the Board and upheld the validity of Regulation 1621. The regulation had a clear purpose (to facilitate the collection of sales tax by keeping payment of the tax as current as possible), set forth with particularity what was required to claim the exemption, and was not unreasonable. The court found that the relationship between the procedure established by Regulation 1621 and the legitimate objectives of the Board was evident. The court also found that taxpayer, as the real party in interest, had standing to bring the action for refund, even though the tax was paid by the vendors of the fuel and not the common carrier. Delta Air Lines, Inc. v. State Board of Equalization (1989) 214 Cal.App.3d 518.

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